Walgreen fiscal profit fell 9 percent

Drugstore operator Walgreen Co. said Monday its profit fell 9 percent in the fiscal third quarter despite improving sales as greater expenses, including its reorganization efforts, reduced its income.

Deerfield, Ill.-based Walgreen aims to cut its annual expenses by $1 billion starting in 2011, which is adding to its costs this year. In the quarter ended May 31, it earned $522 million, or 53 cents per share, down from $572 million, or 58 cents per share.

Analysts were expecting 56 cents per share, according to a poll by Thomson Reuters. Revenue grew 8 percent to $16.21 billion from $15.02 billion. Analysts forecast $16.16 billion in revenue, on average.

The company’s selling, general and administrative expenses rose 8 percent during the quarter, which included 1 percentage point from its savings plan, called “Rewiring for Growth.” Walgreen, the country’s second-largest pharmacy chain by locations, said the plan is on track for $1 billion in annual savings beginning in 2011. It hopes to save $500 million in fiscal 2010. As part of that plan, Walgreen said in January it would eliminate 1,000 jobs, mostly in management.

Walgreen CEO Gregory Wasson said the company had “solid results in a difficult economy while recording significant restructuring costs.” He said that Walgreen’s customers are using less credit and are spending closer to payday. He added that customers are looking harder for bargains, and Walgreen is targeting those customers with its savings club, store-brand merchandise and the Affordable Essentials discount program.

Sales of Walgreen brand products grew 12.8 percent in the third quarter, Wasson said during a conference call.

Walgreen says cost-cutting and sales initiatives cost it 6 cents per share, but resulted in savings of 6 cents per share. Pharmacy sales improved, but sales of nonpharmacy items were hit by the recession.

Walgreen said its same-store sales, or revenue from locations open at least one year, rose 2.8 percent. That includes growth of 3.8 percent in the pharmacies, where Walgreen makes about two-thirds of its sales, and a decrease of 0.9 percent at the front end of the stores.

The company is testing a program called “Consumer Centric Retailing” that is designed to improve its front-end results by reducing the total number of products the company carries and better target consumer preferences. The program is being piloted at 35 stores, and Walgreen said those stores are doing better than expected.

Walgreen has announced it will open fewer new stores in the coming years. It opened 45 stores in the second quarter, down from 122 a year ago.

In total during the quarter, Walgreen opened or bought 162 stores, which gave it a total of 6,857. It also has about 500 worksite health and wellness centers, along with specialty, institutional, and mail-order pharmacies.